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Five New Norms for the compliance market:

  • Top talent will be at a premium
  • Average talent will be valuable
  • Total compensation will rise on a relative basis
  • Recruitment requires creative strategies
  • Talent development programmes will be critical

Plenty of movement and few internal candidates

If you want to gain a perspective into the current compliance recruitment landscape, then you do not need to look much further than the 28 changes to either Global or Regional Heads of Compliance across the 15 largest (non-Chinese) international wholesale banks, in the last two years. This contrasts with an average of five changes per year in the run-up to the financial crisis.

It is not just the wholesale banks who are in the market, though. Hedge funds and smaller niche financial services players are also upgrading their functions, or in some cases creating a distinct function for the first time.
Equally informative is the fact that of the 28 wholesale appointments, only three have been number 2’s promoted into the role.

More True Leaders Required

Banks’ compliance functions have grown hugely since 2007 – some are now over 1000 people – in response to the increased regulatory burden. This is coupled with the requirement to move from an advisory model to develop a stronger audit/assurance capability.

The issue is that this transformation requires individuals at a number of levels in the compliance function who exhibit strong leadership and change management skills, are convincing internally and, crucially, are credible to the regulators. The positioning of the Group Head of Compliance of Barclays on the Executive Committee, although still a relative anomaly, certainly points the way in terms of the level at which Heads of Compliance should be able to operate.

However, there are few of these individuals around, let alone available. Compliance functions have to recognise that despite the not inconsiderable investment they have received over the past decade, they have not been producing and developing much leadership talent and certainly not the talent required for today’s world.

A challenging market for the next five years

Not surprisingly there is an upward trajectory in remuneration packages; in some cases these have increased by as much as 50% since 2011. This contrasts with a fall in total compensation in the front office over the same period. The landscape presents another challenge to Group and Global Heads of Compliance – retention and recruitment.

We estimate it will take five years to resolve the current shortfall in talent. In the meantime we expect relative total compensation packages to outpace other areas of financial institutions. The extent of this depends on how successful compliance functions are in attracting new talent into the function and developing their existing people.

Recognising that there are simply not enough compliance officers of the requisite calibre in existence, compliance functions are going to have to be creative. The four pools banks should look into are:

Lawyers – whilst many lawyers would not make good compliance officers, in the top 15 wholesale banks there are already 10 lawyers successfully occupying Global or Regional Head of Compliance roles. Lawyers are therefore an obvious pool to tap into – the challenge is, and will be, to persuade lawyers that their career may be better served by moving into compliance. The in-house legal function may be a good starting point, as these functions have stopped growing and there are many frustrated lawyers whose future career path is far from clear.

Existing employees – many institutions have individuals who, over the years, have had some exposure to regulators. A number of these are either lawyers by background or have spent some time in the regulator. In addition, there will be other individuals from a range of functions – finance, internal audit, operations and even the front office – who may make very good compliance officers. Ensuring the compliance function is an attractive destination in its own right, rather than just a refuge for staff who are feeling vulnerable about their own job security, is a key for the compliance leadership teams.

Regulators – whilst Sir Hector Sants’ appointment to Barclays is eye-catching, there are few of his stature around. However, there is talent in the regulators and over the next five years some will become available. The prospect of a significant uplift in total compensation will be a key enticement for these individuals to consider a move into a bank.

Big Four/Consultancies – compliance and regulatory practices in the consulting world are enjoying a boom, although are similarly struggling to recruit and retain talent. With a conveyor belt of new graduates joining every year, the consultancies are the major source for bringing fresh compliance talent into the industry.

Better Leadership Development Developing existing team members is going to be equally important

The typical shortfall of the compliance officer lies in business judgement and then some of the softer skills, invariably an ability to influence. It is these skills that the programmes need to be targeted at. Business judgement is honed through experience, whilst one to one coaching usually has the most dramatic impact on the softer skills. The important point is to recognise that the old programmes have not delivered.